A Guide to Common Tax Issues Incident to Filing Business Bankruptcy
Weil Gotshal & Manges LLP
Houston Business and Tax Law Journal, Vol. 4
Any company considering bankruptcy should be aware of certain routine tax procedural items, and this article addresses a number of those issues. The bankruptcy claims resolution process and the requirements of return filing are discussed. Additionally, the effects of bankruptcy on tax audits are touched on.
There is a distinction between liabilities that arise prior to the filing of the bankruptcy petition and those that come forward after the filing of the petition. This distinction of whether a tax liability is pre-petition or post-petition as well as the payment and refund consequences of each is discussed in length.
The most controversial issue within this area deals with the status of tax liabilities for the taxable year in which the bankruptcy petition is filed. Tax authorities adhere to the position that such a liability is a post-petition liability because the tax must not be paid until the last day of the taxable year which is a date following the filing of the bankruptcy petition. However, debtors take the opposing position that the liability should be considered pre-petition, and three Courts of Appeals have adopted their argument and instituted a bifurcation rule in their jurisdictions. The effects of these decisions as well as the determination and payment of pre-petition liabilities are addressed, and a discussion of post-petition interest on tax claims concludes the article.
Date posted: April 19, 2004